Demand For Home Equity Surges

More Seek Financing For Hurricane Repairs

Scores of Central Floridians are tapping into their home equity as they look for ways to offset hurricane damage not covered by insurance.

Banks throughout the region say there has been a surge in applications for home-equity lines of credit, with some institutions reporting 100 percent increases during the past month.

After four hurricanes and billions of dollars in damages, many Florida homeowners are wrestling with contractor estimates, insurance deductibles and settlement shortfalls.

And they are scrambling for money -- drawing on savings, cashing in certificates of deposit, taking out loans -- doing whatever it takes to pay the bills.

Hurricane Charley left William A. Jones with more than $4,000 in repairs for a wind-damaged roof, downed trees and a fence that was leveled. His insurer cut him a check for $1,400, adjusted for the policy's hurricane deductible.

Like many other storm-stricken homeowners, the Winter Springs man made up the difference by turning to an increasingly popular resource -- a line of credit tied to his home equity.

For Jones, it was a simple matter: "I didn't want to devastate my savings to replace my roof. So the home-equity line seemed like a reasonable way to go."

Home-equity credit has been a hot financing alternative in recent years during the housing refinance boom. Although much of the boom has subsided, home-equity credit is still growing at a double-digit pace, increasing 40 percent to $415 million in the second quarter, according to the American Bankers Association.

Since hurricanes began ravaging Florida in mid-August, the number of people setting up home-equity lines of credit has spiked.

"We've seen applications double in the past 30 days," said David Powers, president and chief executive officer of United Heritage Bank in Orlando. People are using the money to pay deductibles and deal with other home-improvement work, he said.

Still, consumer advocates warn homeowners to be cautious when jumping into debt that could put their houses at risk. The house itself serves as collateral for the borrowed money.

The appeal of a home-equity credit line, which is used like a credit card or checking account, is that it tends to be low interest, affordable and convenient. Here's how it works: Customers apply for a certain limit -- say $40,000 -- then draw on it as needed. Payments are adjusted monthly because interest is applied only on the amount the customer has used. Interest rates are variable and change as the prime rate changes.

Home-equity loans differ in that customers borrow a lump sum, and monthly payments are based on the interest rate applied to that principal. Home-equity-loan interest rates may be fixed or variable.

It is the flexibility that has attracted many storm victims to the home-equity credit lines, bankers say. Although some customers are concerned about rising interest rates -- especially with the Federal Reserve's recent rate increases -- home-equity lines are still a compelling alternative, bankers say.

Rates as low as prime -- which is currently below 5 percent -- are now available for home-equity lines. And even if the Fed approves another quarter-point rate increase each quarter for the next year, home-equity credit financing still would be cheaper than credit-card accounts, which may run at 18 percent and higher.

Also, unlike home-equity loans and other conventional loans, there may be little or no costs involved in establishing home-equity lines of credit.

Many banks have aggressively marketed home-equity lines as part of their "hurricane relief" for storm victims. Some also are offering services such as low interest short-term loans, no-penalty early withdrawals of deposit certificates and deferred payments for existing loans.

Washington Mutual, the nation's largest thrift, has been one of the more aggressive marketers of home-equity credit. Its advertisements and fliers have touted the virtues.

"Since the hurricanes hit, we've probably seen a 50 percent increase in people who are interested in the home-equity lines of credit," said David McCumber, a senior manager at Washington Mutual's Winter Springs branch, where William Jones is a customer. "Actual applications are probably up 25 percent since Charley."

But those applying for home-equity lines have far outnumbered those who have actually begun to use them, bankers said. That's because many homeowners can't get anyone out to do repairs. With so many storm-damaged homes statewide, roofers and other contractors are in short supply. Waiting lists can be months long.

"So it's a little early in the game to say how much business we're going to see in the home-equity line," said Ed Timberlake, Bank of America's president of the Central Florida region. "We do know it is a source some are using; in some cases, it may be the only source."